Traders Gauging Stock Market’s Next Move Keep Wary Eye on Flows
- Dealer hedging hasn’t had big impact with liquidity stable
- Lack of liquidity in previous crises intensified market moves
The declines in the S&P 500 have largely happened during regular trading hours, when liquidity is higher.
Photographer: Michael Nagle/BloombergThis article is for subscribers only.
The selloff that took the S&P 500 Index into a correction last week was notable for its relative calm. Now, as investors scour metrics of market sentiment and key price levels for hints of either a recovery or a further slide, they also need to watch a more nebulous aspect: market liquidity.
Stock-market crises from the 1987 crash to Covid share a common theme: dried up liquidity intensified market moves. Now, with the rapid growth of derivatives, there’s a focus on how option positions affect underlying spot markets, especially given the tendency for derivatives blow-ups to linger in memory.